Inputs costs, demand seen lifting India steel price

NEW DELHI Wed Feb 27, 2008 5:10am EST

NEW DELHI Feb 27 (Reuters) - Rising costs of iron ore and other inputs as well as strong demand will likely push up Indian steel prices over the next six months, despite government attempts to contain them, industry officials and analysts said.

Tata Steel (TISC.BO), the world's sixth-largest steel firm, has already raised hot-rolled coil prices twice this year and cold-rolled coil prices once, and smaller firms such as JSW Steel (JSTL.BO), Bhushan Steel (BSSL.BO), Ispat Industries ISPT.BO and Essar Steel have followed suit.

"Steel prices are going up internationally," said M.V.S. Sheshagiri Rao, director of finance at JSW Steel.

"If you take $700 (per tonne) as the base, prices are going to go up by 20-25 percent."

After Steel Minister Ram Vilas Paswan expressed concern over prices earlier this month, steel makers agreed to cut prices on some products by up to $25 per tonne, but the cuts are unlikely to be sustained.

"It (steel price) should go up. If the raw materials are shooting up, either the industry will become sick or it will have to pass on the costs," chairman of Visa Steel, V. Saran said.

Iron ore prices are rising internationally. Brazilian mining giant Vale (VALE5.SA)(RIO.N) secured price rises of 65 percent and higher for the iron ore it sells to major Asian steel mills.

A.S Feroze, an independent mining and steel consultant, expected a doubling in the price of contracted coking coal from April, which is currently about $95 per tonne FOB from Australia.

Industry majors Tata Steel and Steel Authority of India Limited (SAIL.BO), as well as Jindal Steel and Power (JNSP.BO), have some protection against rising costs as they have their own iron ore mines, but most companies will be hurt, Saran said.

The government could cut duties on raw materials such as coking coal, iron ore and scrap in Friday's budget, and increase the export duty on iron ore to help contain prices, but some industry officials said that it was unlikely to help too much.

"Unless there's a heavy duty on exports of iron ore, according to me, prices may rise by another $50-$100 per tonne over the next six months," said Nittin Johari, chief financial officer at Bhushan Steel & Strips."

The pressures come as prices are already underpinned by booming Indian demand, with analysts expecting consumption of finished steel to grow by 10-15 percent this year.

Feroze said demand for steel was stronger than India's annual output of about 50-55 million tonnes.

India, with iron ore reserves of 25 billion tonnes, expects to produce 100 million tonnes of steel by 2012, but for now it has to make up the shortfall from overseas.

"The domestic market can easily absorb another 10 to 15 million tonnes of steel," Feroze said. (Editing by John Mair)